Tightening monetary policy
The Federal Reserve has continually raised rates from December 2015 through June 2017, to 1.50% from 0.25%. Tightening of monetary policy has resulted in a return of capital into domestic-market fixed income. The Fed is expected to raise rates one more time in 4Q17. However, any further rate hikes in 2018 would depend on how other central bankers tighten their monetary policy in the upcoming quarters. Rising rates and higher broad market valuations (SPY)(SPX-INDEX) have attracted sizable funds from retail as well as institutional investors toward fixed-income offerings.
BlackRock (BLK) is now managing $1.70 trillion as of June 20, 2017, under its fixed-income offerings, compared to $1.57 trillion as of June 30, 2016. In comparison, the company is managing $3.01 trillion in equity offerings, compared to $2.43 trillion in the prior year. Fixed-income offerings haven’t seen a major appreciation of holdings over the past few quarters due to rate hikes. However, as rate hikes stabilize, we could see higher valuations for holdings.
BlackRock’s major asset management (XLF) peers—including State Street (STT), JPMorgan Chase (JPM), and Goldman Sachs (GS)—have also seen rising interest for fixed-income offerings in the recent months.
Overall, asset managers with diversified fixed-income offerings can attract more funds as investors seek to diversify their holdings amid peaking markets, the slow execution of reforms from the Trump administration, and subdued manufacturing growth.